Profit isn't just one number. Understanding the difference between gross and net profit is vital for diagnosing business issues.

Gross Profit

Gross Profit = Revenue - Cost of Goods Sold (COGS). It tells you how efficient you are at producing your core product or service.

Net Profit

Net Profit = Gross Profit - Operating Expenses - Taxes - Interest. It tells you the overall profitability of the entire enterprise.

Why Track Both?

If your gross profit is high but net profit is low, you have an OPEX problem. If your gross profit is low, you have a pricing or production cost problem.